Community Banks Warn Senate About Stablecoin Risks to Local Loans

The American Bankers Association’s Community Bankers Council, which speaks for community banks in all 50 U.S. states and territories, has urged the U.S. Senate to take action to protect local economies from risks linked to stablecoins.

In a letter sent to Senators, the council said over 200 community bank leaders have warned that some crypto firms are using gaps in the rules to bypass the GENIUS ACT, which was passed into law last year by President Donald Trump to regulate stablecoins.

The council explained that while the law stops stablecoin companies from paying interest to customers, some firms are getting around the rules by giving indirect rewards through partners or affiliates. These could encourage people to move their savings out of local banks.

Community banks use deposits to give loans to families, farmers, and small businesses. If deposits leave, banks may have less money to lend, which could slow down local growth.

“Community banks are the backbone of local economies,” the letter said. “Allowing inducements like interest or rewards on stablecoins could incentivize customers to move savings out of banks, jeopardizing the lending that fuels growth in towns across America.”

Risk to local economies and credit

The letter warned that without clear legislative rules put in place, up to $6.6 trillion in deposits could be at risk, which could potentially threaten the availability of credit nationwide.

Along with the letter, the ABA council also submitted a detailed state-by-state analysis showing potential deposit outflows and the resulting loss in local lending. This data indicated how widespread the risk could be if stablecoin companies continue to find ways around existing regulations.

ABA’s Community Bankers Council is calling on Congress to clarify in upcoming market structure legislation that the interest prohibition should apply not only to stablecoin issuers but also to their affiliates and partners. The letter warned that anything less could endanger economic growth and the financial stability of local communities.

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